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Middle East and North Africa

Three years after the Arab Spring, the economies of the Middle East and North Africa region remain depressed.

Political turmoil in Egypt, stalemate in Tunisia and an escalation of the civil war in Syria with spillovers to neighboring Lebanon and Jordan have weakened activity in the developing oil-importing countries. Egypt’s GDP contracted by 3.2 percent (saar) in 2013Q2, and growth for the fiscal year (ending in the same quarter) amounted to 2.0 percent, down from a modest 2.3 percent in 2012.

Industrial production in the oil-importing countries contracted by 36 percent (saar) in three months through October, led mainly by sharp declines of 44 percent in Egypt. However, Purchasing Managers Index (PMI) survey crossed into positive territory in November 2013 for the first time in 13 months and stayed above in December as well, signaling an improvement in manufacturing output going forward.

Tourism arrivals to the oil-importing countries plunged dramatically because of security uncertainties in the wake of the overthrow of Morsi government in Egypt and the continuing Syrian civil war, which affected Lebanon and Jordan. Tourist arrivals dropped by 57 percent (saar) in three months through September in the oil-importing countries of the region.

Oil production in developing oil-exporting countries—accounting for nearly a third of the region’s oil output—has fallen over the past year by nearly 8.5 percent (year to date) in 2013, reflecting security setbacks, strikes, and infrastructure problems in Algeria, Iraq, and Libya, and international sanctions in the case of the Islamic Republic of Iran.

External imbalances have worsened across the  developing countries of the region. Current account deficits have widened in the oil-importing countries—hurt particularly by the steep decline in tourism receipts—while current account surpluses have shrunk for the oil-exporting countries as oil exports have declined.

With only a few exceptions, fiscal imbalances have worsened across the region, especially in oil-importing countries. Deterioration reflects weaker revenues due to slow growth, rising public sector spending on wages, subsidies for food and fuel in the wake of the Arab Spring and, in some cases, increased debt servicing charges.

Growth in the developing countries of the region is expected to remain weak during the forecast period.  Under the baseline scenario, marked improvement in the political uncertainty that has plagued the region is not expected. Consequently, aggregate growth for the region will slowly pick up to about 3.6 percent in 2016—but remain well below—it’s potential growth. In developing oil importing countries, consumption will be underpinned by large public outlays on wages and subsidies, while public investment will likely be constrained in the forecast period by large fiscal deficits, while growth in developing oil exporters will strengthen as the oil prices remain relatively high and infrastructure problems and security setbacks are resolved and mitigated.

The region’s outlook is subject to significant downside risks that are mostly internal to the region. A further escalation of violence in Syria and spillovers to other countries can adversely affect the region. Setbacks in political transitions and further escalation of violence would further undermine confidence and delay the structural reforms or reduce oil output.

External risks are more balanced. European growth could disappoint the already modest recovery projected, but it could also do better. Risks from a tightening of global financial conditions could lead to a rise in risk premiums for developing countries and lead to lower FDI. Furthermore, a sharper-than-projected decline in commodity prices could lead to a significant deterioration in external and fiscal accounts of the oil-exporting countries while benefiting more vulnerable importers.

Middle East and North Africa regional forecast
(annual percent change unless indicated otherwise)

Source: World Bank
Notes: e = estimate, f = forecast
* Unless otherwise indicated, regional aggregates are computed for low and middle-income countries in the region and do not include any of the region's high-income countries.
a. Growth rates over intervals are compound weighted averages; average growth contributions, ratios and deflators are calculated as simple averages of the annual weighted averages for the region.
b. Georgaphic region includes the following high-income countries: Bahrain, Kuwait, Oman, Saudi Arabia, United Arab Emirates and Qatar.
c. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars.
d. Sub-region aggregate excludes Iraq and Libya, for which data limitations prevent the forecasting of GDP components or Balance of Payments details.
e. GDP measured at PPP exchange rates.
f. Exports and imports of goods and non-factor services (GNFS).
g. Selected GCC Countries: Bahrain, Kuwait, Oman, Saudi Arabia and United Arab Emirates.

Middle East and North Africa country forecasts
(annual percent change unless indicated otherwise)

Source: World Bank
Notes: e = estimate, f = forecast
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
Djibouti, West Bank and Gaza are not forecast owing to data limitations.
* Published forecasts are for only low and middle-income countries in the region, hence no high-income countries are included.
a. GDP growth rates over intervals are compound average; current account balance shares are simple averages over the period.
b. GDP measured in constant 2010 U.S. dollars.
c. The estimates for GDP decline in Syria in 2012 and 2013 are subject to significant uncertainty.

Middle East and North Africa net capital flows
US$ billions

Source: World Bank
Note: e = estimate; f = forecast

See the regional audio slideshow by the author